Trade or fix?

Should I trade or fix my tractor or combine? The answer for many producers used to be to trade to avoid costly breakdowns in the field, keep current with technology and retain the value of the equipment.
When crop prices are low, however, farmers usually get their equipment repaired because they lack the capital they need to buy new.
In some years, the repair side of a business grows while the sales side has drops off due to the depressed farm economy. Farmers need to consider all the factors involved before deciding to repair their farm machinery to ensure the best use of their machinery dollars.

It's a question equipment dealer Randy Budke gets every day: Should I trade or fix my tractor or combine? The answer for many of his customers used to be to trade to avoid costly breakdowns in the field, keep current with technology and retain the value of the equipment.

However, today with crop prices low, more of his customers are getting their equipment repaired because they lack the capital they need to buy new. “I've had guys tell me, ‘That repair bill is going to be a heck of a lot cheaper than a payment,’” says Budke, service manager at Carrico Implement in Beloit, KS. “Until things change around, that's what I've got to run.”

Budke says in the past few years the repair side of his business has grown while the sales side has dropped off due to the depressed farm economy. But he cautions that, although repairs are right for some, farmers need to consider all the factors involved before deciding to repair their farm machinery to ensure the best use of their machinery dollars.

Financial situation

Budke says the decision to fix and keep an existing machine is justifiable on many farms today. “All of this equipment has been run so many hours for the fact that owners can't update,” Budke says. “It is just not feasible. There are trade-offs on whether to keep the used or trade for new.

“For example, compare a 1980 model, 300-hp 4-wd tractor and a newer model 4-wd John Deere. I can put a hitch pin in these tractors and run each of those machines all day, and both are going to cover the same acres in that season. One guy is making annual tractor payments but will gain some efficiency and comfort with the newer technology, while the other guy spent a total of $5,000 on a repair bill, might have further service problems, and may have to spend more time getting things done.”

Budke says another downside to keeping the older tractor comes when it is time to trade because the older machine will not be worth as much. “There is going to be a day when it will cost him because his equipment has gotten so old and has so many hours on it,” he explains. “But right now, we are doing a lot of repairs.”

Number of hours

The number of hours on a tractor or combine used to be a major determinant of whether to trade or fix. However, today, given the poor farm economy, farmers are running their machines much longer.

“It used to be a tractor started to get 2,500 to 3,000 hours on it and a farmer started to think about getting rid of it,” Budke explains. “Now, we can take the same farmer and he is approaching the 5,000-hour mark and still running it. Same thing with combines. We used to see combines turn every five to six years to keep them updated. Now, if a farmer has a good one and a good model that does a good job of threshing, it seems like they run them a lot longer.”

Because of this extended hour mark, Budke says you need to look at all the factors, not just number of hours, when making your decision. And, he adds, if you do decide to trade, and you trade for something only a few years newer and with hours similar to those on your existing machine, there is no guarantee that you won't have to make the same repairs as you would have made had you kept your old one.

Anticipated time of trade

Cory Ziegler, AGCO sales engineer for Gleaner/MF combines, offers these questions to consider: “Is it time to update or trade your machine for a lower-use unit in the first place? Similarly, has the machine become more obsolete than what you could be running?”

Making large-scale investments in repairs to older machines typically means you will have to run them for some time to make an adequate return on that investment. Ziegler advises farmers to evaluate the cost of repair now against what it will cost to trade into a newer or lower-use unit.

Deere's Budke says the anticipated time of trade also can determine the extent of repairs most feasible to make. “Is the customer thinking of running the tractor another 1,000 hours and getting rid of it?” Budke asks. “Or is he thinking of running it another 4,000 hours and getting rid of it? If the guy is thinking of getting rid of the tractor in the 1,000-hour period, we'll maybe cut back on a lot of the work and try to get him through that period. But if a customer says, ‘No, I'm going to keep it and run it,’ then we have to pretty much go all the way with repairs because we have to get him though several thousand hours of running yet.”

Long-range farming plans

Consider your future plans for farming, Budke says. For example, if you plan to switch from conventional till to no-till, you may not want to invest a lot in a 4-wd tractor that won't be used as much once you make that transition. “If a farmer is saying, ‘Well, I've been running 700 hours a year on this tractor but I'll probably be dropping down to 200 hours a year if I make that transition,’ then there are probably some things on the repair side we wouldn't need to do because his hours are going to really drop off,” Budke says.

Repair costs

Todd Stucke, general marketing manager for AGCO tractors, says it is almost always less expensive to repair tractors in the short-term; however, long term it may be more economically feasible to buy something new.

He says the time to consider replacing your tractor is when your repair bills start to exceed your capital costs of owning a new machine. “You can either pay repair expense or interest and depreciation expense,” Stucke explains. “So if I own a new tractor and my payment to own it is X and my repair cost is more than X, then obviously it is more economically feasible to own that new piece of equipment.” One exception to that rule is if your financial situation does not allow for such a trade.

Another exception is if the machine is a combine. AGCO's Ziegler says because of a combine's high replacement cost, repairs are almost always more feasible than trading up. He says there are two exceptions to that rule: if a combine has severe fire damage or if it has severe rock or foreign object damage not covered by insurance. “It would take many combines pretty much out of commission,” he says. “Unless they are newer machines, they would not be worth repairing.”

Skill level

Another factor to consider is your level of mechanical skill, AGCO's Stucke says. “Everybody has different abilities,” he says. “Some can market their crops a lot better than they can fix their equipment. The next guy can fix his equipment a lot better than he can market his crop. So he hires a consultant to sell his crop and he fixes his combine. So those things must be factored in when deciding if you are going to trade or not.”

Reliability

“Is this piece of equipment sound enough?” offers Stucke. “If we do the normal repairs, will it make it through the season?” He says this factor is especially important for your critical pieces of equipment, such as a planter, planter tractor or combine. “It is just not easy to switch out a planter tractor if it breaks down because of the monitors, variable rate technology and other equipment hooked up to it,” he explains. “Because of that you are faced with more downtime.”

Tolerance for downtime

“Another thing you have to figure in is your cost of downtime and the cost of your headaches to deal with the repairs,” Stucke adds. “When your downtime exceeds your tolerance for downtime or your economic profitably, that is the time you have to look at replacing your tractor with a newer, more reliable machine.”

Equipment savers

Whether your tractor is new or old, there are things you can do to keep it in tip-top working condition. Matt Rushing, AGCO sales engineer for high-horsepower tractors, says owner/operators should perform the following tasks at each service interval specified by the machine's operator's manual: